How To Figure Out Which Tax Filing Status Would Save You The Most

If you're unmarried and childless, your tax filing status
probably seems like a nonissue. In the eyes of the IRS, you're
single.

But what if you get married? Or what if you get divorced? What if
you become a single parent? How do you know what your status is,
then?

And more importantly … why does
it matter?

You can have one of five filing statuses.

In the eyes of the IRS, you can be:

Single

Married filing jointly

Married filing
separately

Head of household (an
unmarried person with a dependent)

Qualifying widower with
dependent child

Your filing status for the entire year is determined on December 31. If you're married,
divorced, or widowed on the last day of the year, that will be
your filing status for the 364 previous days.

Your filing status directly impacts how much you'll pay in taxes.

The IRS doesn't ask for your filing status out of sheer
curiosity. Along with affecting your filing requirements and the
total amount of tax you pay overall, the status you declare will
determine two things in particular:

Your deductions. Deductions are costs which you
can subtract from your taxes, reducing the total amount of your
assets subject to tax. While people with more complicated tax
situations might choose to itemize their deductions (list them
all and calculate individual deductions for each), many people
claim the "standard deduction," which is a set deduction
determined by — you guessed it — your filing status.

Your tax bracket. Your tax bracket determines
your tax rate, based on your income. Generally, the more you
make, the more you pay, but it varies depending on your filing
status. Tax Act provides a handy chart of the brackets,
along with an easy tool to determine your own.

People with multiple statuses can choose the most advantageous.

If, on the last day of the year, more than one status applies to
you, the IRS instructs you to choose the status that "gives you
the lowest tax obligation."

Certified public accountant Manuel Pravia of Miami-based firm
Morrison, Brown, Argiz, & Farra explains that generally, for
unmarried people with similar taxable income, qualifying widower
with a dependent child — if your situation applies — costs less
than head of household, which costs less than single. "So an
unmarried person with a dependent would be better off picking
head of household instead of single," he explains. "If that
dependent was a child and they were widowed within the past two
years, they could pick any of the three, with qualified widower
being the best."

For married couples, Pravia says, things aren't as clear cut:
"The only way to identify whether joint or separate is the best
filing status is to run through the calculation." In fact, he
alludes to the "marriage penalty," which is the pattern of
dual-income earners marrying and paying the price of being pushed
into a higher bracket. If there's only one income earner, though,
"the couple filing jointly would pay less than the income earner
filing separate."

Of course, a financial professional such as an accountant or
financial planner would be best able to estimate the effect your
filing status will have on your taxes, but there's another
resource at your disposal: a simple tool at IRS.gov can help figure out your filing status
for you.